Although a higher DP means higher CF, it also means a lot longer time period to recover your cash in.What's really (I'm trying really hard to think of a nice word to use here),  Uh, "not smart", is thinking that somehow increasing your DP to change negative CF to positive CF is a good thing. 

We do plan on having at least 6 months of rent saved in the bank in case we do not have any renters for an extended period of time.  

I would first check my loan terms and verify if you have any type of pre payment penalty (which you most likely will).I would then do a side by side comparison chart with your expenses if you were to 1. refi out of the ARM and pay penalties+closing costs on new loan for a period of 5 years with your new interest rate VS. 2. keep loan as is and pay your current rate for the next 5 years and the refi at that point with that year's current penalty.Hope this helps and good luck!  

Waited ‘seasoning period’ of 6 months for the refi and unfortunately the appraisal came in low at 185k so I couldn’t pull out as much cash as I hoped but because the mortgage was smaller it cash flowed well each month.

Generally, they will adjust periodically.

My personal accounts have a POD/TOD beneficiary, so for purposes of easy transition upon my death (and to keep things simple - at least that was my goal) they effectively function the same way as a trust account would (only they're not technically trust accounts).Most of my periodic cash flow from these syndications comes back into my personal checking account via ACH. 

And yes, this analysis requires me to assume exit at some point so I run different hold periods i.e. 10, 15, 20 years with assumed sale prices at disposition.

@Dave Foster Correct, the 3 rental years after moving out (from your example) would not be considered a period of nonqualified use, as per Section 121(b)(5)(C)(ii)(I).

We do plan on having at least 6 months of rent saved in the bank in case we do not have any renters for an extended period of time.

I'm relatively new to the industry, but I have never seen a loan that offers a "grace period" of sorts to delay any type of payment at all.